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Sunday, October 14, 2012

Balance austerity measures with growth, says IMF committee

TOKYO: The world
economy needs to balance austerity with growth if it is to recover fully
from the global financial crisis, a key IMF committee said in Tokyo on
Saturday.

"Fiscal policy should be appropriately calibrated to be
as growth-friendly as possible," the International Monetary and
Financial Committee said in a communique.

The statement came
after days of back and forth between those - led by Germany - urging no
let-up from belt-tightening and those arguing for a loosening of the
grip of austerity.

Singapore's Deputy Prime Minister and Finance
Minister Tharman Shanmugaratnam said world economies are in a better
position today than they were six months ago, with regard to the policy
footing for getting growth restarted.

"We've got to find ways of
supporting growth in the short-term, even in the environment of fiscal
consolidation, by finding measures that are growth-friendly...
growth-friendly forms of fiscal consolidation," he said.

Mr Tharman was speaking as the chair of the International Monetary Fund's steering committee.

He
is at the IMF and World Bank's annual meeting in Tokyo, where world
leaders endorsed a checklist of policy reforms aimed at defusing debt
troubles in Europe and the United States.

Global financial
ministers wrapped up two days of talks, calling for quick and effective
action to safeguard faltering economic growth.

The IMF's
governing panel praised policy steps which it said made the world
financial system safer, even if they had not yet gone far enough.

IMF
Managing Director Christine Lagarde said on Thursday she was happy for
Greece - struggling under the weight of cuts demanded by international
creditors - to have two more years to meet its deficit-reduction
targets.

But the following day, Germany's finance minister
Wolfgang Schaeuble said there was "no alternative" to cutting bloated
national balance sheets.

Speaking to reporters, Lagarde played
down growing speculation of a rift on the depth and timeline for painful
austerity cuts in debt-addled eurozone economies.

"There have
been a lot of debates on fiscal adjustment. And what sometimes has been
presented as disagreement is more about perception than reality," she
said.

"We all recognise credible, medium-term adjustments are
necessary in all advanced economies... (but) the pace and type of
measures obviously need to be calibrated on a country-by-country basis.
It cannot be one-size-fits-all."

She added that fiscal policy alone "is not sufficient".

"On these points, there was complete agreement," she said.

The
International Monetary and Financial Committee is a body made of up two
dozen central bankers and government ministers who advise the IMF's
board on its work.

Days after the Fund warned the world's economy
was growing at a slower rate than previously thought, the committee
said there remained "substantial uncertainties and downside risks".

"Key policy steps have been announced, but effective and timely implementation is critical to rebuild confidence," it said.

"We
need to act decisively to break negative feedback loops and restore the
global economy to a path of strong, sustainable and balanced growth.

"Advanced
economies should deliver the necessary structural reforms and implement
credible fiscal plans. Emerging market economies should preserve or use
policy flexibility as appropriate to facilitate a response to adverse
shocks and support growth."

The communique said monetary easing -
like that practised by the US Federal Reserve and other central banks -
had been helpful, but it was vital that "credible medium-term fiscal
consolidation plans" were put in place.

"In the euro area,
significant progress has been made. The ECB's decision on Outright
Monetary Transactions and the launch of the European Stability Mechanism
are welcome. But further steps are necessary.

"We look forward
to timely implementation of an effective banking and a stronger fiscal
union to strengthen the monetary union's resilience, and structural
reforms to boost growth and employment at the national level."

The
communique said Washington had to resolve the looming problem of the
so-called "fiscal cliff" -- a collision of tax hikes and reduced public
spending due to hit early next year.

Observers have warned this could knock the already-wobbly US recovery off track.

The
committee said that Japan, the world's third largest economy, which has
struggled to refloat itself after a series of set-backs, including the
quake-tsunami disasters last year, needed to secure funding for this
year's budget.

The Japanese government has warned it could soon
face shutdown if a deadlocked parliament does not take its foot off the
brake and allow it to borrow more money.